Kế toán, kiểm toán - Chapter 14: Planning debt financing

Chapter 14Planning Debt FinancingCopyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin14-*What are the 3 Basic Types of Notes?Periodic Payment Note Installment noteBorrower receives the face value and makes periodic payments of principal and interestPV = amount borrowed, FV = 0, r = annual rate of interest, c = number of payments per year, n = total number of payments, determine ANN = amount of each payment14-*Basic Notes ContinuedLump-sum payment noteNoninterest-bearing noteBorrower receives an amount less than the face value of the note and repays the face value of the note at some point in the futurePV = amount received, c = number of compounding periods per year, n = total number of compounding periods, r = annual rate of interest, ANN = 0, determine FV = face value of note14-*Basic Notes ContinuedPeriodic and lump-sum payment noteInterest-bearing noteBorrower makes 2 promises: (1) repay the face amount of the note at some point in the future and (2) pay interest based on the face amount of the note and the face rate of interest periodically throughout the life of the noteBorrower receives more or less than the face value of note depending on the market rate of interest14-*Periodic and Lump-sum Payment Note ContinuedFV = face value (amount repaid at end), ANN = interest paid periodically (face value * face rate * time), r = market rate of interest (annually), c = number of interest payments per year, n = total number of interest payments, determine PV = amount received14-*How do Notes Impact Budgeted Financial Statements?Income statementInterest expense (also tax expense—beyond the scope of this text)Statement of cash flowsCash paid periodically and at the endBalance sheetCarrying value of the note14-*Budgeted Financial Statements: Installment NotesIncome statementInterest expense decreases over time because we are paying principal and interest with every payment, therefore, the principal on which interest is based decreases over timeStatement of cash flows Payment of principal and interest is constant over time Balance sheetCarrying value of the note decreases over time because we are making principal payments over the life of the note14-*Budgeted Financial Statements: Noninterest-bearing NotesIncome statementInterest expense increases over time because interest accrues but is not paid over the life of the note (carrying value increases)Statement of cash flowsNo periodic payment madeBalance sheetCarrying value of the note increases over time as the interest incurred, but not paid, is added to the carrying value of the note14-*Budgeted Financial Statements: Interest-bearing Notes (Market Rate greater than Face Rate)Income statementInterest expense increases over time because we are making payments based on the face rate of interest when the market rate of interest is higher, therefore, the additional interest accrues over the life of the noteStatement of cash flowsCash payment of interest is constant over time14-*Budgeted Financial Statements: Interest-bearing Notes (Market Rate greater than Face Rate) ContinuedBalance sheetThe carrying value of the note increases over time as the interest accrued, but not paid, is added to the carrying value14-*Budgeted Financial Statements: Interest-bearing Notes (Market Rate less than Face Rate)Income statementInterest expense decreases over time because we are making payments based on the face rate of interest when the market rate of interest is lower, therefore, the reduction in interest accrues over the life of the noteStatement of cash flowsCash payment of interest is constant over time14-*Budgeted Financial Statements: Interest-bearing Notes (Market Rate less than Face Rate) ContinuedBalance sheetThe carrying value of the note decreases over time as the reduction in interest is subtracted from the carrying value14-*What are the Most Common Sources of Debt Financing?Private financingBorrowing from financial institutionsLeasingPublic financingIssuing bonds14-*What are the Most Common Types of Bonds?RegisteredCallableConvertibleSerialSecuredSubordinated